Which of the following was the result in the case in the text William Cavanaugh v.
Margaret McKenna, the case in which the plaintiff was sued for opening a funeral home
after she agreed to refrain from doing so in her divorce as part of a covenant not to
compete with her ex-husband?
A. That the agreement was invalid because it was entered into in connection with a
divorce, not in connection with either an employment agreement or the sale of a
business.
B. That the agreement was invalid because it was most analogous to the sale of a
business and was unreasonable.
C. That the agreement was valid because it was most analogous to an employment
agreement and was reasonable.
D. That the covenant was invalid because it did not contain an explicit time limitation.
E. That the covenant was reasonable and valid and construed liberally because it was
most analogous to the sale of a business.
Which of the following is true regarding criteria needed for creation of the agency
relationship?
A. The agency must be created for a lawful purpose, and the person hiring an agent
must have contractual capacity.
B. The agency must be created for an equitable as well as a lawful purpose, and the
person hiring an agent must have contractual capacity.
C. The agency must be created for a business and lawful purpose, and the person hiring
an agent must have contractual capacity.
D. The agency must be created for a lawful purpose; and, although there is no
requirement that the person hiring an agent have capacity, the person acting as an agent
must have contractual capacity.
E. The agency must be created for an equitable as well as a lawful purpose; and,
although there is no requirement that the person hiring an agent have capacity, the
person acting as an agent must have contractual capacity.
“Bad Check.” Mindy, a bank teller, saw that customer Fred did not have sufficient funds
in his account to cover a check presented for payment. Mindy was new and was
confused about what to do with the check. She asked the bank manager, Trevor, about
any available options. Trevor told her that the bank was required by law to dishonor the
check, that the check should be returned to the holder with a notation that it had been
dishonored, and that it could not be presented again. Mindy asked Trevor if there were
any policies the bank could institute to provide customers with overdraft protection, and
Trevor answered that those were prohibited by law.
Which of the following is true regarding what a bank may do to offer overdraft
protection to customers?
A. In regard to overdraft protection a bank may (1) credit a customer’s checking account
although federal law prohibits charging for this service, (2) link a checking account to
the customer’s savings account to cover the overdraft, and (3) link a checking account to
the customer’s credit card to cover the overdraft.
B. In regard to overdraft protection a bank may (1) credit a customer’s checking account
and charge for this service, (2) link a checking account to the customer’s savings
account to cover the overdraft, and (3) link a checking account to the customer’s credit
card to cover the overdraft.
C. In regard to overdraft protection a bank has only two options (1) link a checking
account to the customer’s savings account to cover the overdraft, and (2) link a checking
account to the customer’s credit card to cover the overdraft.
D. Under federal law, the only option open to a bank in the event of a customer’s
overdraft is to credit the customer’s account although no charge may be made for the
service.
E. Under federal law, the only option open to a bank in the event of a customer’s
overdraft is to credit the customer’s account, and a charge may be made for the service.
Which of the following is false regarding management of a corporation?
A. Shareholders generally participate in corporate management.
B. Shareholders elect a board of directors.
C. The board of directors selects officers to manage the day-to-day business of the
corporation.
D. If shareholders die, corporations do not dissolve.
E. In most states, corporations can exist indefinitely.
If the purpose of an insurance policy is to protect property from loss or damage, the
insurance is ______ insurance.
A. Material
B. Loss
C. Economic
D. Business
E. Property
Which of the following was the result in Hartford Underwriters Insurance Company v.
The Cincinnati Insurance Company, the case in the text involving whether insurance
coverage was available to a party injured when a vehicle hit her while she was loading a
van and the policy at issue provided coverage for a person “occupying” a vehicle
defined as “in, upon, getting in, on, out or off”?
A. That a jury question was presented as to the meaning of the policy language.
B. That any ambiguity in the language was resolved against the insurer writing the
policy, that a reasonable reading of the policy included the claim, and that coverage was
therefore available.
C. That any ambiguity in the language was resolved against the claimant, that a
reasonable reading of the policy indicated that incidents of the type involved were
excluded, and that coverage was therefore unavailable.
D. That the language was not ambiguous and that it clearly provided coverage.
E. That the language was not ambiguous and that it clearly excluded coverage.
Which of the following is false regarding promoters?
A. Promoters prepare the corporation’s incorporation papers.
B. Promoters raise capital for the infant corporation.
C. Promoters can purchase buildings for the corporation.
D. Promoters are agents for the company being formed.
E. A promoter may insert a clause into a contract with a supplier stating that the
corporation’s adoption of the contract terminates the liability of the promoter.
In which of the following does a contract arise not from words but from the conduct of
the parties?
A. Implied contracts
B. Express contracts
C. Liquidated contracts
D. Bilateral contracts
E. Unilateral contracts
Which of the following is what a person will receive in return for performing a contract
obligation?
A. Consideration
B. Acknowledgement
C. Approval
D. Accord
E. Accession
Which of the following is true regarding whether an accepted offer to pay part of a debt
is consideration?
A. Partial payment is consideration under all circumstances.
B. Partial payment is not consideration under any circumstances.
C. Partial payment is consideration if a liquidated debt is involved.
D. Partial payment is consideration if an unliquidated debt is involved.
E. Partial payment is consideration if an exception applies to the general rule that partial
payment is not consideration for an unliquidated debt.
Which of the following is true regarding the remedy if a party does not abide by an
agreement reached in mediation?
A. Because mediation is a voluntary process, there is no legal remedy.
B. The remedy is to return to mandatory mediation.
C. The remedy is to proceed to arbitration.
D. The remedy is to sue for breach of contract.
E. The remedy is to proceed to a minitrial.
Which of the following is false regarding the Freedom of Information Act?
A. Information may be obtained under the act regarding how an agency gets and spends
its money.
B. Citizens are entitled to any records that government agencies have about them.
C. Records involving national security are exempted from the act.
D. Information regarding the agency’s personnel records may be obtained under the act.
E. Records involving an individual’s private life are exempted from the act.
Which of the following occurs when a plaintiff expressly agrees, usually in a written
contract, to assume the risk posed by the defendant’s behavior?
A. Implied assumption of the risk.
B. Express assumption of the risk.
C. Express assumption of the last-clear-chance doctrine.
D. Implied assumption of the last-clear-chance doctrine.
E. Assumption by incident.
Which of the following is an international agreement governing the arbitration of
private international disputes that has been ratified by the U.S.?
A. The Hague Convention
B. The International Arbitration Convention
C. The French Convention
D. The New York Convention
E. The NAFTA Convention
Under which of the following does a principal give an agent broad authority to sign
legal documents on behalf of the principal?
A. A general power of attorney
B. A specific order of authority
C. A localized legal empowerment
D. A broad power of responeat superior
E. A recognized power of order
Which of the following was the result on appeal in In re Estate of Kurrelmeyer, the case
in the text in which the decedent’s son sued the wife of the decedent alleging that in
violation of the power of attorney that she held, she invalidly transferred the decedent’s
home into a trust?
A. That because no extrinsic evidence existed to clarify the meaning of the power of
attorney, the transfer was invalid.
B. That because no extrinsic evidence existed to clarify the meaning of the power of
attorney, the transfer was valid.
C. That because the power of attorney did not specifically give the wife the power to
transfer property into the trust, the transfer was invalid.
D. That based on extrinsic evidence showing the decedent’s intent, the power of
attorney included the power to transfer the property.
E. That based on extrinsic evidence showing the decedent’s intent, the power of attorney
did not include the power to transfer the property.
Which of the following is true regarding entities considered banks under the UCC?
A. Savings and loans and trust companies are considered banks, but credit unions are
not.
B. Savings and loans and credit unions are considered banks, but trust companies are
not.
C. Trust companies and credit unions are considered banks, but savings and loans are
not.
D. Savings and loans, credit unions, and trust companies are all considered banks.
E. Only an entity holding itself out as a “bank” is considered a bank under the UCC,
and therefore neither savings and loans, credit unions, nor trust companies are
considered banks.
“Lost Check.” Susan Jones teaches business law at Learn-A-Lot University.
Learn-A-Lot requested that all of the teachers ask the students to wear on the day of the
first football game T-shirts with “Learn-A-Lot University Football” printed on the front.
All of the teachers were asked to sell the shirts in class. A student, Bobby, wrote a check
to Susan for $10 for payment for one of the shirts. Bobby, however, put Susan Jones as
the payee. Susan wanted to turn the check over to the school, so on the back of the
check, she wrote, “Susan Jones, without recourse.” She then gave the check to the
treasurer for Learn-A-Lot University. Unfortunately, the treasurer for Learn-A-Lot
dropped the check on the ground as she was going to the bank. A student, Shifty, found
the check and promptly took it to the bank and cashed it. The treasurer, Bernice, did not
want to get into trouble, so she asked Susan to personally cover the check because she
said that Susan had endorsed the check on the back guaranteeing payment.
Would the school be able to require that Susan cover the amount of the check based on
the law of negotiable instruments?
A. Yes, because she signed on the back with a blank unqualified endorsement.
B. Yes, because she signed on the back with a special qualified endorsement.
C. Yes, because she signed on the back regardless of the type of endorsement.
D. No, because she signed on the back using the words, “without recourse.”
E. No, because the check was not properly delivered to Shifty.
Which of the following is an association of two or more persons to carry on as
co-owners a business for profit?
A. A joint operation
B. A combined partnership
C. A partnership
D. A joint business arrangement
E. A primary partnership
Which of the following oversees the purchase and sale of securities?
A. The Securities Act of 1933
B. The Securities Exchange Act of 1934
C. The Depression Act of 1932
D. The Oversight Act of 1935
E. The Stock and Bond Act of 1930
Which of the following occurs in Australia whenever an illegitimate threat is made to
hold on to goods unless a payment is made or an agreement is entered into?
A. Unconscionable duress
B. Duress of goods
C. Duress of merchandise
D. Duress of trade
E. Unreasonable duress
In a short-form merger, the parent corporation must own at least ______ percent of the
outstanding shares of each class of the subsidiary’s stock.
A. 90
B. 75
C. 50
D. 40
E. 30
“Pet Flicks.” Jill went to work as an independent contracting photographer for Exotic
Pet Flicks, a company specializing in photographing exotic pets, such as monkeys and
snakes, with their owners. The company’s home office was in California, but Jill
worked in Florida. Before she started work, Jill signed an agreement to arbitrate any
dispute she had with the company. The arbitration agreement provided that in the event
of a dispute, Jill would completely cover the cost of the arbitration; that she could only
receive up to $150 in damages regardless of her claims, punitive or otherwise; and that
any arbitration would be conducted at the company’s home office. The agreement also
provided that the arbitrator was not bound to strictly follow the official court rules of
evidence. Jill signed the agreement because she really needed a job and liked animals.
Her only previous animal photography experience, however, had been with cats and
dogs. Jill’s contract provided that she would be paid $100 per shoot and that the
company would take steps to ensure her safety. One day she was called in to
photograph a skunk and its owner. She was told by the receptionist at Exotic Pet Flicks
that the skunk had been altered so that it could not spray. Jill felt safe. Unfortunately,
the skunk had not been altered. Just as she was starting to shoot, the skunk became
upset. It ran over, sprayed Jill, and in the resulting commotion, Jill’s expensive camera
was knocked over and broken. Plus, Jill’s outfit was ruined and she stank for days. Jill
wants to sue Exotic Pet Flicks for $5,000 to cover the cost of her camera, her clothing,
and her general stinkiness for several days. Jill says that she cannot afford to pay for the
arbitration.
What effect would the provision requiring that she pay have on the agreement?
A. It will have no effect because Jill signed it, and she is bound by it.
B. Jill will be bound by the provision because while under federal law she had three
days in which to back out of the agreement, she did not do so.
C. Jill will be bound by the agreement unless she testifies that she did not read it.
D. Jill will be bound by the agreement unless she can prove that she was orally
promised it would not be enforced.
E. Courts have refused to enforce arbitration agreements that require that the plaintiff
pay the costs of the arbitration.
“Prenuptial Agreement.” Rhonda performed accounting services for Greg’s used car
business. She had a contract with Greg to the effect that she would audit his books and
financial statements for his own use, not for the purpose of obtaining loans. In auditing
Greg’s business, she developed various notes, calculations, memorandums, and other
papers. Candace, Greg’s fiancé, approached Rhonda to inquire about Greg’s business.
Candace and Rhonda had been friends for many years. Rhonda allowed Candace to
look at the various notes, calculations, and other papers resulting from her review of
Greg’s financial statements and other records. Candace told Rhonda that she really
needed to investigate Greg because they were thinking of getting married, and she
believed he had a legal obligation to disclose the information to her because of
negotiations involving a prenuptial agreement. Rhonda agreed and proceeded to discuss
Greg’s finances with Candace revealing all the information that Greg had disclosed to
her. Candace broke up with Greg telling him that after what she discovered from
Rhonda, she was concerned that Greg could not support her in the way in which she
wanted to become accustomed. Greg was very angry with Rhonda and told her that she
was unethical and had violated the accountant-client privilege.
Assuming that Rhonda discussed with Candace confidential communications that she
had with Greg, which of the following is true regarding the ethical nature of that
communication?
A. Rhonda did not commit an ethical violation in disclosing information to Candace
unless there was a state law providing for an accountant-client privilege.
B. Regardless of whether a state law existed providing an accountant-client privilege,
federal statutory law deems such conduct unethical.
C. Rhonda did not commit an ethical violation because negotiations regarding a
prenuptial agreement were involved.
D. Rhonda committed an ethical violation but only because Candace was not yet
married to Greg.
E. Rhonda committed an ethical violation.
By what U.S. Constitutional authority did Congress pass the Sherman Act?
A. Through its authority to regulate interstate commerce.
B. Through its authority to prevent discrimination.
C. Through its authority under the First Amendment.
D. Through its authority under the Fourth Amendment.
E. Pursuant to the due process clause contained in both the Fifth and Fourteenth
Amendments.
Which of the following was the result on appeal in Auerbach v. Bennett the case in the
text in which a shareholder brought a derivative action after an internal audit of the
GTE Corporation suggested that the corporation’s management had paid significant
amounts in bribes and kickbacks over a period of several years?
A. The court ruled that the business judgment rule exempted the directors from liability.
B. The court ruled that the business judgment rule exempted the directors from liability
only so long as the directors could establish that the shareholders did not lose money on
account of their actions.
C. The court ruled that the business judgment rule exempted the directors from liability
unless the shareholder could establish that the shareholders lost money on account of
their actions.
D. The court ruled that the business judgment rule did not apply because illegality was
involved and that the corporation was, therefore, liable.
E. The court ruled that the business judgment rule shielded the lawsuit insofar as
foreign wrongdoing was alleged, but not for wrongdoing committed in the U.S.
“Green Trees.” Wally, the president of Green Corporation, a company that provides
landscaping services, wanted his corporation to purchase Tree Corporation, another
corporation providing landscaping services. The board of Tree Corporation, however,
did not wish to sell. The board of Green Corporation decided to buy any or all of Tree
Corporation’s stock in order to gain control of Tree Corporation. The management of
Tree Corporation and its board strongly objected to the attempt by Green Corporation to
take over the company. Green Corporation offered to purchase stock held by
shareholders of Tree Corporation at a price substantially above the current market value
of the stock. When that strategy was not wholly successful, Green Corporation offered
to give shareholders of Tree Corporation stock in Green Corporation in return for their
stock in Tree Corporation.
Which of the following is a term for the attempt of Green Corporation to take over Tree
Corporation over the objection of management and the board of Tree Corporation?
A. Under the table takeover
B. Surprise takeover
C. Strategic takeover
D. Hostile takeover
E. Planned takeover
Which of the following is a term used to define the payment made by an insured party
in exchange for a later payment by an insurer in the event of damage or injury to
insured property or person?
A. Tag
B. Bill
C. Premium
D. Assessment
E. Requirement
“Miracle Pill.” Katie advertised that she had developed a pill for women that would
result in weight loss, wrinkle loss, and improved vitality; and that for men would result
in all those things plus hair growth. Her television advertisement showed miracle results
allegedly obtained by consumers. Katie cautioned, however, that ingestion of the pill for
six months was required before results would be evident. The pill was wildly popular.
The Federal Trade Commission, however, investigated and determined that Katie had
failed to have a reasonable basis for the claims she made in advertisements. Katie
claimed that she was merely involved in the use of generalities and clear exaggerations.
The Commission disagreed and issued a formal administrative complaint against her.
After a hearing, an order was issued requiring that Katie stop advertising and selling the
pills. After losing all appeals, Katie continued selling the pills until she was fined by the
Federal Trade Commission. She has since left the country and cannot be located.
Which of the following is the term for the order issued by the Federal Trade
Commission ordering that Katie stop advertising and selling the pills?
A. A stop gap order
B. An approved order
C. An agency acknowledged order
D. An agency requirements order
E. A cease-and-desist order
Which of the following is true regarding laws passed by the U.S. Congress under the
authority of the commerce clause?
A. As long as the law affects commerce among the states, or interstate commerce, in
some way, the regulation is generally constitutional.
B. The law will only be constitutional if it affects taxation in some way.
C. As long as the law involves in some way a right guaranteed by the Bill of Rights, it is
constitutional.
D. As long as the law is approved by any state affected, it is constitutional.
E. As long as the law is not objected to by any state affected within six months of its
passage, it is constitutional.
“Weeds.” Susie developed a product guaranteed to immediately kill weeds, but
absolutely no other type of grass or shrub. She has encountered several individuals and
businesses in other countries who would like to enter into contracts with her and market
her products internationally. She went to Willie, who just graduated law school and has
yet to pass the bar, and asks him for advice regarding those contracts. Willie proceeded
to tell her that she should simply enter into the same type of contract with international
businesses and individuals from other countries as she would if those individuals and
businesses were located in the United States. He tells her that if there is any problem,
then they will simply have to come to the United States to settle the matter, and that any
issues would be determined in Susie’s home county, in her home state, and under her
state’s law. He also mentions to her that she should consider contacting local foreign
officials in the areas in which she would like her product sold and suggest to them that
she can contribute heavily to election campaigns if she is allowed without any hassles
to obtain necessary business licenses and approvals to do business.
Which of the following is true regarding Willie’s advice that she contacts foreign
officials regarding election campaign contributions?
A. Willie was incorrect, and following his advice would put Susie in danger of violating
the Foreign Corrupt Practices Act.
B. Willie was incorrect, and following his advice would put Susie in danger of violating
foreign laws in the countries in which she makes such offers; but she would not be in
danger of violating any U.S. laws.
C. Willie was incorrect, and following his advice would put Susie in danger of violating
the Uniform Anti-Bribery Statute.
D. Willie was incorrect, and following his advice would put Susie in danger of violating
the federal Unfair Competition Act.
E. Willie was correct, and following his advice is a good idea for Susie.